Overview of Gibraltar’s Funds Regime
Gibraltar’s position as a rapidly growing alternative jurisdiction for investment funds and their managers over the years has been well recognised and ISOLAS LLP have been on the front of this development. Central to Gibraltar’s position as a thriving fund’s domicile are its: flexible yet robust funds regulations, internationally recognised and EU standard anti-money laundering and Organisation for Economic Co-operation and Development (OECD) conventions; stable political climate; favourable funds tax regime (for funds and their managers alike); quality infrastructure; European time zone; professionally trained workforce and ability to identify and regulate emerging markets early on, to name a few.
Gibraltar’s funds legislation provides for a variety of funds products the most popular being the Private Fund and the Experienced Investor Fund.
A Private Fund, is an unregulated collective investment scheme that is not subject to any licensing requirements. Private Funds can only be made available to a restricted and identifiable category of up to 50 persons and cannot be listed on any stock exchange. There are no specific licensing requirements for the directors on the board of a Private Fund, nor are there any requirements for a PF to appoint a custodian or an investment manager. A Private Fund may be self-managed by its directors and there are no statutory restrictions governing a Private Fund’s investments or leverage.
Private Funds are well suited for “family and friend” investors or individuals who wish to manage their investments in a formal fund structure. They are often used as a cost-efficient way of pooling and trading a small group of individuals’ funds and are also often established as investment vehicles for high-net-worth individuals, family offices and business owners. Private Funds are extremely flexible and can be tailored to suit individual requirements.
Private Funds must remain private for one year from the date of offer after which it may be converted into an EIF to attract further investment outside of the “identifiable category of person” category.
Benefits of establishing a Private Fund include: speed, cost-effectiveness and efficiency, no custodian/depositary requirement, no authorised Gibraltar resident directors’ requirement and no pre-approval from the Gibraltar Financial Services Commission (“GFSC”) is required to commence investment activities.
Experienced Investor Fund
An Experienced Investor Fund (“EIF”) is a regulated collective investment scheme designed for professional, high net worth or experienced investors. An EIF may be open-ended or close-ended and can be marketed to an unlimited number of investors provided they meet the definition of an experienced investor. This definition broadly covers, investment professionals, investors who have a net worth in excess of €1,000,000 or an investor that invests a minimum of €100,000 in the EIF.
There are no statutory investment restrictions or limitations on borrowing or leverage. EIFs allow for a wider range of investments from traditional asset classes to more alternative in nature.
EIFs benefit from the facility to launch the EIF and notify (rather than apply to) the GFSC within 10 days of the launch.
EIFs can be set up within a matter of days of finalising the offer documentation as no GFSC approval is required (other than for its initial incorporation). The speed and ease of set up along with the degree of flexibility that the EIF allows makes it an excellent alternative/hedge fund/private equity/property vehicle.
Benefits of establishing an EIF include: pre-launch approval or post-launch notification mechanism available, can be marketed very quickly, no investment or borrowing restrictions, ability to be self-managed, competitive start-up and on-going costs and no diversification requirements.
Protected Cell Company
Structuring a fund using a Protected Cell Company (“PCC”) provides the ability to segregate a fund’s assets and liabilities between different subdivisions (cells). Each cell may serve as a sub-fund with separate investment strategies and investors. There is no limit to the number of cells a PCC may create.
Since Gibraltar’s distributed ledger technology (DLT) regulatory framework came into effect in January 2018, Gibraltar has seen an emerging demand for setting up “crypto-funds”. Due to the specific considerations required to be considered when managing crypto assets, the Gibraltar Funds and Investments Association (“GFIA”) recommends that all crypto funds dealing with third party money should be regulated as EIFs, however, a crypto private fund may be used in certain circumstances. GFIA has issued specific standards in the structure of crypto funds, corporate governance, risk management, valuation, custody, safekeeping and security, and a host of other important touchpoints. This has been achieved through a specific addendum to the Corporate Governance Code for Collective Investment Schemes which has been in place since 2013 and was originally issued by to formalise and codify the existing best practices for collective investment schemes and their directors.
Gibraltar legislation allows foreign funds to re-domicile into Gibraltar without triggering the need to re-execute all existing contracts and arrangements. This includes funds domiciled in most international financial centres such as Cayman Islands, Hong Kong, Switzerland, Singapore Jersey and the BVI, to name a few. The re-domiciliation process does in no way operate to create a new legal entity, or affect the continuity of the fund or its property.
Gibraltar’s EIF regulations include provisions within the definition of an “Experienced Investor” to allow for participants in funds that are re-domiciling to Gibraltar to automatically qualify, under certain circumstances, as “Experienced Investors” for the purposes of Gibraltar law.
Gibraltar funds benefit from a very low rate of taxation. Gibraltar has a 10% corporation tax. Additionally, Gibraltar does not tax any income which does accrue or derive from Gibraltar. Consequently, funds which undertake investment activities outside Gibraltar often fall outside the scope of local taxation. Gibraltar has no VAT, no capital gains tax, no inheritance, wealth or withholding tax on dividends paid out of Gibraltar. Gibraltar also benefits from a very low personal rates of taxation.
Fund managers based in Gibraltar would be subject to the flat 10% rate of corporate tax applied across all Gibraltar companies on an accrued in, or derived from basis. This is one of the lowest corporate tax rates in Europe.
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ISOLAS have advised private clients, family offices and an international base of investment managers on the structuring and set up of Gibraltar based fund solutions. We are regarded as one of the leading Fund teams in Gibraltar, offering a first class and personal service while also developing synergies with our clients in the Funds sector.
Our team is able to advise on all aspects of a fund set up in Gibraltar and to assist in taking any project from concept through to launch and beyond as well as being able to act as a central reference point for all counterparties to make the procedure seamless. ISOLAS have also advised international firms on Gibraltar fund related issues, and on the promotion of collective investment schemes in Gibraltar as well as the effect of the Alternative Investment Fund Manager Directive.
All UCITS directives are fully implemented into Gibraltar law and Gibraltar will shortly be transposing the UCITS IV directive into law. This is expected to generate growth in the Gibraltar UCITS sphere.